By Steve Goldstein
Guy Spier once jointly bid more than $600,000 to eat lunch with Warren Buffett , but these days he’s willing to talk investments by Zoom with an Indian investment group.
The Zurich-based managing partner for Aquamarine Capital Management said he’s approaching investing differently now.
“I had a debate with a friend the other day about Facebook,” Spier said in a video released this week. “I suggested to him, Facebook is the new tobacco.”
Yes, the company is wonderful at connecting people, but there are teenaged girls who will develop eating disorders, he said, while others will fall victim to pedophilia organized on their platforms. (Facebook, now called Meta , concedes its products are bad for body image but says its research shows teens benefit from being able to share issues they’re encountering, and that it is spending billions of dollars on safety and security.)
More broadly, Spier said he’s looking at how companies treat all their stakeholders.
“In the past I would have looked for companies that are the most profitable in one way or another. I would have looked at companies that have the highest return on capital, highest returns, highest margins, and that would have been an indicator of a company that is a good company to invest in,” said the author of “Education of a Value Investor.”
“Today, I no longer look for the highest returns because it’s very likely that if you earn extremely high returns, somebody is getting ripped off, somebody in your stakeholder group is not a happy camper but they just can’t do anything about it.”
Instead, he looks at what companies are profitable but can continue to conduct their business on a growing basis, where everybody who interacts with the company is happy that the company exists.
Companies lock in their cloud business with Amazon.com /zigman2/quotes/210331248/composite AMZN +1.96% , he says, because they know the corporate culture there will keep prices as low as they possibly can.
Costco Wholesale /zigman2/quotes/201191698/composite COST +1.32% is a company that’s great for customers, but also suppliers, who make up for thin margins with high volumes.
On sizing, he starts a position with somewhat under 5% of the portfolio, which he then tries to leave alone.
Going back to Amazon, he said one mistake is thinking they may go the lifetime of its business without ever declaring a profit. “It turns out I didn’t really understand the nature of its reinvestment in something that is extraordinarily profitable.”
Forget about balance sheet valuation, and income statements and cash flow statements again won’t provide a good guide to value. That leaves “far more subtle” indicators like lifetime value of a customer and customer acquisition costs.
Revenue is the one metric that’s not going to be subject to much manipulation, so a company that trades on 100 times revenue — like Snowflake /zigman2/quotes/220991541/composite SNOW +5.61% — is hard for an investor to make much of a profit on.
“Yes, valuations are high, and that makes life difficult,” Spier said.
Aquamarine’s top holdings, according to its 13-F filing, are Berkshire Hathaway /zigman2/quotes/200060694/composite BRK.B -0.30% , American Express /zigman2/quotes/203805826/composite AXP -0.75% , Bank of America /zigman2/quotes/200894270/composite BAC +1.24% and Mastercard /zigman2/quotes/207581792/composite MA +0.94% .
Spier recently told CNBC how he’s received exposure to Chinese tech giant Tencent /zigman2/quotes/204605823/delayed HK:700 +0.73% by investing in technology investor Prosus /zigman2/quotes/214038022/delayed NL:PRX -0.88% . Spier said Prosus parent Naspers /zigman2/quotes/205954517/delayed ZA:NPN -0.38% communicates to investors in a “clear and open way.”